Why Is IV a Key Input for the Black-Scholes Model?

Implied Volatility (IV) is a key input because the Black-Scholes model requires a measure of the underlying asset's price fluctuation to estimate the option's fair theoretical value. Since all other variables (underlying price, strike, time, interest rate, dividend yield) are known, IV is the only unknown parameter that must be estimated or derived.

It fundamentally determines the time value component of the option price.