Optimal Execution Strategies Incorporating Internal Liquidity Through Market Making

TL;DR

This paper presents a novel algorithmic execution model that combines interbank orders with internal liquidity from market making, optimizing trade execution by balancing market impact and internal liquidity sources.

Contribution

It introduces a new model based on Cartea et al.'s framework that integrates market impact considerations for interbank orders while excluding impact for internal market making.

Findings

Improved execution efficiency through optimized liquidity balance

Reduced market impact on interbank orders

Enhanced algorithmic trading strategies incorporating internal liquidity

Abstract

This paper introduces a new algorithmic execution model that integrates interbank limit and market orders with internal liquidity generated through market making. Based on the Cartea et al.\cite{cartea2015algorithmic} framework, we incorporate market impact in interbank orders while excluding it for internal market-making transactions. Our model aims to optimize the balance between interbank and internal liquidity, reducing market impact and improving execution efficiency.