As the BSM gives a call price as function of Stock price, volatility and other inputs, c(0) = BSM[Stock, Strike, volatility, riskfree rate, term], it seems to me you could use it in an analogous way to implied volatility (i.e., implied vol is the volatility input that produce a model output = traded market price).
The analogous use, i think, would be to input/assume a volatility, then given an observed (traded) option price, simply iterate to solve for the Stock price that calibrates the BSM = the traded option price; i.e., conditional on a given volatility assumption, this would be the fair stock/asset price implied by the BSM.
... of course, in addition to the inherent model risk, you have to assume a volatility [that is NOT the implied volatility] so, i think it's Merton-esque in that you are hinging it on the hard to estimate volatility.
David Harper, www.bionicturtle.com
