{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,30]],"date-time":"2026-10-30T14:33:16Z","timestamp":1793370796514,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":23,"publisher":"Elsevier BV","content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>This study examines the efficiency of bilateral cross-hedging between stocks listed on the Uganda Securities Exchange (USE) and the Nairobi Securities Exchange (NSE), created by replicating options on portfolios consisting of cross-listed stocks. Both markets are relatively illiquid, with several stocks cross-listed in Uganda Shillings (UGX) and Kenya Shillings (KES), offering hedgers a choice of market for hedging options and managing price risk. A portfolio containing a domestic asset, which is also cross-listed but considered here in its domestic currency with \u03b2 shares and a cross-listed stock with \u03c9 shares was analyzed. The cross-listed stock was modeled first as UGX-denominated asset using the one-dimensional (1-D) Black-Scholes model, and second as a cross-currency asset combining foreign exchange rates and KES prices using the two-dimensional (2-D) Black-Scholes model. The objective is to hedge the \u03c9 shares of the cross-listed stock only and compare hedge performance under transaction costs between the domestic currency and foreign-currency approaches. Results show that the 1-D model while hedging the domestic asset, produces slightly higher final portfolio values than the 2-D model while hedging the foreign asset when the transaction costs on the exchange rates are close to zero. An increase in transaction costs on the exchange rates leads to a decrease in the final portfolio values with higher standard deviation values. The 2-D model yields higher standard deviations due to additional foreign exchange rate and foreign asset risk. However, the 1-D model while hedging the foreign asset as a single asset yields lower final portfolio values compared to the 2-D case with slightly lower standard deviation values. When the underlying domestic asset gets too expensive and illiquid, the foreign asset can be traded as an alternative when the transaction costs on the exchange rates are low.<\/jats:p>","DOI":"10.2139\/ssrn.6289578","type":"posted-content","created":{"date-parts":[[2026,3,12]],"date-time":"2026-03-12T14:07:34Z","timestamp":1773324454000},"source":"Crossref","is-referenced-by-count":0,"title":["Bilateral Hedging Analysis of Options on a Cross-Listed Stock in an Illiquid Market"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0000-2086-4373","authenticated-orcid":true,"given":"Erina","family":"Nanyonga","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Juma","family":"Kasozi","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Fred","family":"Mayambala","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Hassan W.","family":"Kayondo","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"ORCID":"https:\/\/orcid.org\/0000-0001-7948-4658","authenticated-orcid":true,"given":"Matt","family":"Davison","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","reference":[{"issue":"3","key":"ref1","article-title":"Cross-hedging currency risks in Asian emerging markets using derivatives in major currencies","volume":"23","author":"R Aggarwal","year":"1997","journal-title":"Journal of Portfolio Management"},{"key":"ref2","doi-asserted-by":"crossref","first-page":"698","DOI":"10.1016\/j.eneco.2012.11.016","article-title":"The (de) merits of minimum-variance hedging: application to the crack spread","volume":"36","author":"C Alexander","year":"2013","journal-title":"Energy Economics"},{"key":"ref3","first-page":"297","article-title":"Risk management and bilateral contracts in multi-agent electricity markets","author":"H Algarvio","year":"2014","journal-title":"International Conference on Practical Applications of Agents and Multi-Agent Systems"},{"issue":"6","key":"ref4","doi-asserted-by":"crossref","first-page":"1182","DOI":"10.1086\/261028","article-title":"Cross hedging","volume":"89","author":"R W Anderson","year":"1981","journal-title":"Journal of Political Economy"},{"key":"ref5","author":"U Broll","year":"1996","journal-title":"Cross hedging in currency forward markets"},{"issue":"3","key":"ref6","doi-asserted-by":"crossref","first-page":"555","DOI":"10.2307\/4126731","article-title":"Cross-hedging with currency options and futures","volume":"38","author":"E C Chang","year":"2003","journal-title":"Journal of Financial and Quantitative Analysis"},{"key":"ref7","author":"R Chen","year":"2020","journal-title":"The Black-Scholes Option Pricing Model. 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