The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.
~ Ralph Waldo Emerson ~
Black-Scholes made it possible for an idiot with a calculator to imagine that he was smart enough to judge the value of options ... it has always been possible to determine option value -- Black-Scholes is not necessarily the best approach.
In his preface to the sixth edition of Security Analysis, noted value investor Seth Klarman discusses how Graham and Dodd's methods mentioned in the original edition (copyright 1934) are more relevant than ever. Specifically, Mr. Klarman suggests how he has successfully applied those methods. Mr. Klarman is relatively-famous for his use of option in an investment strategy has been been significantly more profitable than average. Mr. Klarman has taken advantage of less well-informed investors who falsely pride themselves on their mathematical sophistication and familiarity with formulas like Black Scholes. Those investors "plug and chug" their numbers into their quantitative models [without having a clue about the fundamentals driving the probability distribution upon which the mathematics of the formula are based], receive their below average returns and never realize that the problem when almost everyone is using Black-Scholes, the market is ripe for a successful contrarian anti-Black-Scholes strategy.
An option pricing strategy based upon value investing precepts would be driven by a rigorous analysis of downside potential and a similar analysis of upside potential. The rigor necessary for understanding the sensitivity of the stock to various scenarios would inform the judgement necessary to determine the likelihood of those different scenarios. Option pricing based upon Graham and Dodd's methods would not be driven by irrationally sanguine market-driven estimates of either implied or historical volatility ... it would reflect actual risks faced by the underlying assets, not the market assessment of those risks ... as you will recall, value investing is based upon the premise that the market-based assessments are frequently very, very wrong.
Anyone seeking additional insights into Seth Klarman's methodoloy, should obtain a copy of Security Analysis and a copy of Mr. Klarman's own text Margin of Safety. Of course, there are plenty of other reasons to read, re-read, re-re-read Security Analysis and Margin of Safety beyond just an alternative to Black-Scholes.