4 ms·

The way the article is written, it appears that the formula is used as: 1. Observe market parameters (volatility of the underlying and risk free rate) 2. Plug i

The way the article is written, it appears that the formula is used as: 1. Observe market parameters (volatility of the underlying and risk free rate) 2. Plug into formula 3. Deduce a price for the option. My point is that it is used in the opposite way: observe prices to deduce market parameters. You claim my point is obvious, but I'm not sure it would be obvious to a reader unfamiliar with modern finance reading this article, which is the target audience.

blitzar 2y ago
> 1. Observe market parameters (volatility of the underlying and risk free rate) 2. Plug into formula 3. Deduce a price for the option. In the FX market (interbank), the quoted and "traded" number is Implied Vol - the price of the option then follows from there (via the Black–Scholes model).