Does the Black-Scholes Model Account for the Bid-Offer Spread? ⎊ Path

Does the Black-Scholes Model Account for the Bid-Offer Spread?

The basic Black-Scholes-Merton (BSM) model does not directly account for the bid-offer spread. It is a theoretical pricing model that outputs a single fair value for the option, assuming a frictionless market with no transaction costs.

Traders and market makers then apply the BSM value as a mid-point reference, adjusting the bid and ask prices around it to incorporate transaction costs, risk, and the spread.

What Role Do Market Makers Play in Setting the Bid-Offer Spread?

In an Option Spread Strategy (E.g. a Bull Call Spread), How Many Times Does the Bid-Offer Spread Cost Factor In?

How Does the Order Book Depth Influence the Bid-Offer Spread on a Crypto Platform?

How Does the Black-Scholes Model Use Implied Volatility to Calculate Option Price?

How Does the Concept of ‘Fully Diluted Valuation’ (FDV) Relate to Vesting?

What Is the Black-Scholes Model Primarily Used for in Options Trading?

What Is the Difference between a ‘Quoted Price’ and a Market maker’S’theoretical Fair Value’?

How Does the Black-Scholes Model Form the Basis for Options Quoting in Crypto RFQs?

Glossar

The Black-Scholes Model

Foundation ⎊ The Black-Scholes model serves as the cornerstone for modern options pricing theory, providing a continuous-time framework for calculating the fair value of derivatives.