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1、OptimalExecutionwithLimitandMarketOrdersIForthcoming:QuantitativeFinanceAlvaroCarteaa,SebastianJaimungalbaDepartmentofMathematics,UniversityCollegeLondon,London,UKbDepartmentofStatisticalSciences,UniversityofToronto,Toronto,CanadaAbstractWedevelopanoptimalexecutionpolicyfora
2、ninvestorseekingtoexecutealargeorderusinglimitandmarketorders.Theinvestorsolvestheoptimalpolicyconsideringdi erentrestrictionsonvolumeofbothtypesofordersanddepthatwhichlimitordersareposted.WeshowhowtheexecutionpoliciesperformwhentargetingthevolumescheduleoftheAlmgren-Chrissex
3、ecutionstrategy.Thedi erentstrategiesconsideredbytheinvestoroutperformtheAlmgren-Chrisspricewithanaveragesavingspershareofaboutonetotwoandahalftimesthespread.ThisimprovementoverAlmgren-Chrissisduetothestrategiesbene tingfromtheoptimalmixoflimitorders,whichearnthespread,andmar
4、ketorders,whichkeeptheinvestor'sinventoryscheduleontarget.Keywords:AlgorithmicTrading;HighFrequencyTrading;Acquisition;Liquidation;ImpulseControl;TWAP.1.IntroductionThemainroleofexchangesistoprovideimmediacytoinvestorswhowishtobuyorsellassets.Immediacyisprovidedbydealersandot
5、herpatientinvestorswhosubmitpassiveorderstothelimitorderbook(LOB)and,ascompensation,receivethebid-askspread.Awiderspreadincentivizesliquidityprovision,butincreasesthecostofexecutingmarketorders,whileanarrowerspreadhastheoppositee ect.ThespreadisagoodmeasureofthecostofITheauth
6、orswouldliketothankRobertAlmgren,FrederiG.Viens,andananonymousrefereefortheircommentsanddiscussionsofthetopic.SJwouldalsoliketothankNSERCandGRIforpartiallyfundingthiswork.ACacknowledgestheresearchsupportoftheOxford-ManInstituteforQuantitativeFinance.Emailaddresses:a.cartea@u
7、cl.ac.uk(AlvaroCartea),sebastian.jaimungal@utoronto.ca(SebastianJaimungal)PreprintsubmittedtoTBANovember20,2014Electroniccopyavailableat:http://ssrn.com/abstract=2397805immediacy,butnottheonlyone.DepthoftheLOBisanotherimportantdimensionofthiscostwhichiskeytoimpatienttradersw
8、hoseektoexecutelargeorders.Largeorderswhichareexecutedinonetransacti
