nested functions in Lua

[Norman Ramsey <nr@...>]

The main change in Lua 3 seems to have been the addition of nested functions.
Can anyone tell me how these have been implemented?  I can think of 
two obvious strategies. (1) closure analysis in the compiler, allocate
variables on the heap, minimal changes to the interpreter.  (2) minimal
changes to the compiler, have the interpreter do all the work when it
sees %x.

How is it actually done?

N