medium · Quantitative Finance

If a quantitative developer switches from an explicit scheme to an implicit scheme for solving the Black-Scholes PDE, what is the primary computational trade-off involved?

1. Implicit schemes are unconditionally stable but require solving a linear system at each step
2. Implicit schemes are faster per step but require smaller time steps
3. Implicit schemes are only stable for low-volatility environments
4. Implicit schemes cannot handle American option early-exercise features

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