How Is the Black-Scholes Model Adapted for Pricing Crypto Options?

The Black-Scholes model is the foundational framework for pricing options, but its assumptions, like continuous trading and constant volatility, are challenged by the crypto market's unique features. Crypto options pricing often adapts Black-Scholes by accounting for the 24/7 nature of the market, the lack of a traditional risk-free rate in some jurisdictions, and the high, non-constant volatility (which leads to the use of stochastic volatility models).

While still used, it often serves as a benchmark, with adjustments made for the specific characteristics of the underlying cryptocurrency and its derivatives market.