For diffusion equations (and many other equations), it can be shown the Crank–Nicolson method is unconditionally stable. However, the approximate solutions can still contain (decaying) spurious oscillations if the ratio of time step Δt times the thermal diffusivity to the square of space step, Δx2, is large (typically larger than 1/2 per Von Neumann stability analysis). For this reason, whenever large time steps or high spatial resolution is necessary, the less accurate backward Euler method is often used, which is both stable and immune to oscillations.
then, letting , the equation for Crank–Nicolson method is a combination of the forward Euler method at and the backward Euler method at n + 1 (note, however, that the method itself is not simply the average of those two methods, as the equation has an implicit dependence on the solution):
Note that this is an implicit method: to get the "next" value of u in time, a system of algebraic equations must be solved. If the partial differential equation is nonlinear, the discretization will also be nonlinear so that advancing in time will involve the solution of a system of nonlinear algebraic equations, though linearizations are possible. In many problems, especially linear diffusion, the algebraic problem is tridiagonal and may be efficiently solved with the tridiagonal matrix algorithm, which gives a fast direct solution as opposed to the usual for a full matrix.
A quasilinear equation, such as (this is a minimalistic example and not general)
would lead to a nonlinear system of algebraic equations which could not be easily solved as above; however, it is possible in some cases to linearize the problem by using the old value for , that is instead of . Other times, it may be possible to estimate using an explicit method and maintain stability.
Example: 1D diffusion with advection for steady flow, with multiple channel connections
This is a solution usually employed for many purposes when there is a contamination problem in streams or rivers under steady flow conditions but information is given in one dimension only. Often the problem can be simplified into a 1-dimensional problem and still yield useful information.
Here we model the concentration of a solute contaminant in water. This problem is composed of three parts: the known diffusion equation ( chosen as constant), an advective component (which means the system is evolving in space due to a velocity field), which we choose to be a constant Ux, and a lateral interaction between longitudinal channels (k).
where C is the concentration of the contaminant and subscripts N and M correspond to previous and next channel.
The Crank–Nicolson method (where i represents position and j time) transforms each component of the PDE into the following:
Now we create the following constants to simplify the algebra:
and substitute (2), (3), (4), (5), (6), (7), α, β and λ into (1). We then put the new time terms on the left (j + 1) and the present time terms on the right (j) to get:
To model the first channel, we realize that it can only be in contact with the following channel (M), so the expression is simplified to:
In the same way, to model the last channel, we realize that it can only be in contact with the previous channel (N), so the expression is simplified to:
To solve this linear system of equations we must now see that boundary conditions must be given first to the beginning of the channels:
: initial condition for the channel at present time step : initial condition for the channel at next time step : initial condition for the previous channel to the one analyzed at present time step : initial condition for the next channel to the one analyzed at present time step.
For the last cell of the channels (z) the most convenient condition becomes an adiabatic one, so
This condition is satisfied if and only if (regardless of a null value)
Let us solve this problem (in a matrix form) for the case of 3 channels and 5 nodes (including the initial boundary condition). We express this as a linear system problem:
Now we must realize that AA and BB should be arrays made of four different subarrays (remember that only three channels are considered for this example but it covers the main part discussed above).
where the elements mentioned above correspond to the next arrays and an additional 4x4 full of zeros. Please note that the sizes of AA and BB are 12x12:
The d vector here is used to hold the boundary conditions. In this example it is a 12x1 vector:
To find the concentration at any time, one must iterate the following equation:
When extending into two dimensions on a uniform Cartesian grid, the derivation is similar and the results may lead to a system of band-diagonal equations rather than tridiagonal ones. The two-dimensional heat equation
can be solved with the Crank–Nicolson discretization of
assuming that a square grid is used so that . This equation can be simplified somewhat by rearranging terms and using the CFL number
For the Crank–Nicolson numerical scheme, a low CFL number is not required for stability, however it is required for numerical accuracy. We can now write the scheme as:
Solving such a linear system is not practical due to extremely high time complexity of solving a linear system by the means of Gaussian Elimination or even Strassen algorithm. Hence an Alternating direction implicit method can be implemented to solve the numerical PDE whereby one dimension is treated implicitly and other dimension explicitly for half of the assigned time-step and vice versa for the remainder half of the time-step. The benefit of this strategy is that the implicit solver only requires a Tridiagonal matrix algorithm to be solved. The difference between the true Crank–Nicolson solution and ADI approximated solution has an order of accuracy of and hence can be ignored with a sufficiently small time-step.
The importance of this for finance, is that option pricing problems, when extended beyond the standard assumptions (e.g. incorporating changing dividends), cannot be solved in closed form, but can be solved using this method. Note however, that for non-smooth final conditions (which happen for most financial instruments), the Crank–Nicolson method is not satisfactory as numerical oscillations are not damped. For vanilla options, this results in oscillation in the gamma value around the strike price. Therefore, special damping initialization steps are necessary (e.g., fully implicit finite difference method).
^Crank, J.; Nicolson, P. (1947). "A practical method for numerical evaluation of solutions of partial differential equations of the heat conduction type". Proc. Camb. Phil. Soc. 43 (1): 50–67. doi:10.1007/BF02127704..
^Thomas, J. W. (1995). Numerical Partial Differential Equations: Finite Difference Methods. Texts in Applied Mathematics. 22. Berlin, New York: Springer-Verlag. ISBN978-0-387-97999-1.. Example 3.3.2 shows that Crank–Nicolson is unconditionally stable when applied to .