Realization of increased spectral efficiency with polarization multiplexing and advanced modulation formats require performance optimization at the transmitter and the receiver, considering the laser linewidth, chromatic dispersion, polarization mode dispersion and nonlinear effects. This paper addresses the performance optimization of a 200G system using PDM-16QAM. DSP algorithms for the mitigation of the phase noise of the laser, drifts in modulator bias, frequency drifts of the transmitter and receiver lasers are discussed in detail. Frequency domain and a time domain approach is discussed to compensate for the impairments introduced due to chromatic dispersion and polarisation mode dispersion. The performance of a complete 200G system in the presence of different impairments and the associated trade-offs are discussed in detail. © 2015 IEEE.