What Is a ‘Volatility Oracle’ and How Is It Used in Options Pricing?

A volatility Oracle provides a measure of the expected price fluctuation of an asset to the smart contract. This data is critical for calculating the option's premium (or price) using models like Black-Scholes.

Unlike a price Oracle which provides the current spot price, the volatility Oracle feeds a variable that determines the probability of the option expiring in-the-money, thus affecting its fair value.