Optimal Execution with Passive Market Impact
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摘要
We derive a mesoscopic model of optimal execution with passive limit orders, grounding it in microstructural observations of order-flow imbalance and limit-order fill probabilities [page::1]. The model yields a reduced-form passive impact rate that decays exponentially with quote distance and links directly to fill intensity [page::2]. An optimal liquidation problem is solved where the trader selects the distance of passive sell quotes, trading off higher fill probability against larger cumulative impact and potential non-execution risk [page::3]. Empirical calibration using NASDAQ equities and public FX data supports the core microstructural assumptions and highlights extensions to heterogeneous decay rates, transient impact, and target execution schedules [page::4].
