A method for calibrating a pulse oximeter device and an apparatus incorporating the method and a system for utilizing the method. The method is based on modeling light propagation in tissue at two wavelengths, typically, one in the red and one in the infrared range of the spectrum. A formula is derived relating the arterial oxygen saturation to a ratio R commonly measured by standard pulse oximeters. A specific parameter is identified and utilized in the calibration of the oximeter. This parameter is formulated in terms of the DC signals measured by the pulse oximeter at the two wavelengths. An empirical method for estimating this parameter based on experimental data is also described.