How Are Asset Prices Determined for an Options Contract on a DEX?

Prices for options contracts on a Decentralized Exchange (DEX) are typically determined by an Automated Market Maker (AMM) or a central limit order book (CLOB). AMMs use a predefined mathematical formula, often incorporating variables like time to expiry, implied volatility, and the strike price, to algorithmically set the option price.

CLOBs rely on matching buyer and seller bids and asks, similar to traditional exchanges.