What Is the ‘Black-Scholes Model’ and What Is Its Primary Use in Derivatives?

The Black-Scholes Model is a mathematical model used to estimate the theoretical price of European-style options. It considers five key inputs: the underlying asset's price, the strike price, the time to expiration, the risk-free interest rate, and the implied volatility.

Its primary use is to provide a benchmark for option valuation, allowing traders to determine if an option is currently over- or under-priced in the market. While originally for traditional finance, it is adapted for crypto options.