The market price of the option is used to calculate implied volatility by using the Black-Scholes formula and back-solving for the volatility's value.
If it is a European call, what is the cost of the option?
The formula for the price of a European call option
D1 is [ln(P0/X) + (r+v2/2)t]/v and D2 is [d1 - v]t. The underlying security price is P0.
The price of a stock option is calculated using the Black-Scholes model, which also considers a stock's volatility, price and strike price, expected dividend yield, and risk-free interest rate for a stable asset.
Therefore, The model presupposes that the stock price will fluctuate along a lognormal distribution path for the duration of the stock option.
Learn more about Black Scholes from the given link.
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