Groundlearn / Glossary / Lognormal distribution
Lognormal distribution
A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
The distribution of a variable whose natural logarithm is normally distributed. Bounded below by zero and right-skewed.
The exam angle
Used for asset prices because a price cannot go negative, while continuously compounded returns can be modelled as normal. That pairing is the basis of Black–Scholes–Merton.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- DerivativesCFA Level I · exam weight 6–9% · Forwards, futures, swaps, options and arbitrage-free pricing.
- Valuation & Risk ModelsFRM Part I · exam weight 30% · VaR and ES, option valuation, bond risk, stress testing, credit and op risk.
Related terms
- Cash flow additivityThe principle that the value of a set of cash flows equals the sum of the values of its parts, so two ways of reaching…
- Continuous compoundingCompounding over infinitely small intervals.
- Forward rateThe interest rate agreed today for borrowing or lending over a future period, implied by today’s spot curve.
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- AnnuityA series of equal cash flows at equal intervals.
- Arithmetic meanThe sum of the observations divided by their number.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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