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Which Options Pricing Model Incorporates Volatility?

The Black-Scholes-Merton (BSM) model uses volatility as a key input to calculate the theoretical option premium.
Greeks.Live02.11.25

Which Options Pricing Model Incorporates Volatility?

The most widely recognized and foundational model is the Black-Scholes-Merton (BSM) model. Volatility is a critical input in this model, specifically the expected future volatility of the underlying asset.

This volatility input heavily influences the extrinsic value (time value) of the option premium.

How Does the “Black-Scholes-Merton” Model Relate to the Concept of an Option’s Fair Value?
Define the “Black-Scholes Model” in Options Valuation
What Is the Name of the Most Common Model Used for Pricing European Options?
How Does the Black-Scholes Model Simplify the Valuation of European Options?

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