Lognormal Distribution

In simple terms: a lognormal distribution is the result of a function that produces output data.

Following below is the equation and explanations.

Important property of this distribution is that it does not take values less than 0. But how do we get this shape? A lognormal distribution is very much what the name suggest "lognormal".

I explain this as follows: Imagine that you have a function that is the exponent of some input variable. The input variable itself is a normal distribution function.

e.g. $$ y = k.e^r $$

Now, if we take a natural log of this function then we end up with a normal distribution. Why? because taking a natural log on an exponent function returns you the input variable and we have already stated that the input variable is a normal distribution.

Stock(10) = stock.
Interest rate(0.08)= Interest rates( Mean %):
Volatility(0.4) = Volatility(%)

Interest rates( Mean %):


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