[tel]

That's something of a moot argument, though, since BSM computes prices in terms of the future volatility. Since we have the actual price, the volatility is actually what we solve for with BSM.

Even if we had neither price nor volatility, we can still talk about the surface of possible (price, volatility) pairs which are compatible with the model.

[hgibbs]

But how do we get the prices? If I tell you the at-the-money front-month call is $1000 will you tell me the vol is 100pa?

[tel]

Yeah, basically. Also need the strike, spot, an estimate of the risk free rate (probably not today).

The implied vol is a useful way to make sense of the actual market prices of options. We also might have some predictions about the market's implied vol changing going forward and we can reverse those errors back into expected price changes (and maybe trade on them).