What Is a “Black-Scholes” Model and Is It Applicable to Valuing Altcoin Derivatives during a Flight to Quality?

The Black-Scholes model is a mathematical model used to estimate the theoretical price of European-style options. While foundational, it has limitations in crypto due to the high volatility, non-normal distribution of returns, and lack of a true risk-free rate.

During a flight to quality, altcoin volatility spikes, making the model's constant volatility assumption inaccurate. Practitioners often use modified models or Monte Carlo simulations instead.