How Does the Black-Scholes Model Account for Market Liquidity in Option Pricing?

The original Black-Scholes model does not explicitly include a variable for market liquidity. It assumes a continuous, frictionless market where any size trade can be executed instantly at the market price, which implies perfect liquidity.

However, in real-world applications, practitioners often adjust the model's inputs, particularly the volatility or the risk-free rate, to implicitly account for the costs and risks associated with illiquidity in a specific market.