Which Volatility Measure Is Used as an Input in the Black-Scholes Model and Which Is the Output? ▴ Learn

Which Volatility Measure Is Used as an Input in the Black-Scholes Model and Which Is the Output?

Implied volatility (IV) is the output when the Black-Scholes model is used in practice. Traders input the option's current market price (premium) along with other known variables (strike price, time to expiration, etc.) and solve the formula for the unknown variable, which is the IV.

Conversely, historical volatility (HV) is a potential input when attempting to calculate a theoretical option price, although this is less common in professional trading, where IV is preferred for its forward-looking nature.

Differentiate between Historical Volatility and Implied Volatility

What Is the Difference between Historical and Implied Volatility?

How Does the Black-Scholes Model Use Implied Volatility to Calculate Option Price?

How Does the Black-Scholes Model Use Implied Volatility?