In an incomplete market with non-redundant forward contract and with K state variables, a (K+3)- mutual fund separation theorem is obtained in lieu of Merton's (K+2)- fund because of the interest rate risk brought about by the optimal portfolio strategy itself. Second, the mean-variance efficiency of the market portfolio is neither a necessary nor a sufficient condition for linear relationship between expected return and beta to hold. Third, the pricing equation for a forward contract is different from that for a cash asset.
LIOUI, A. and PONCET, P. (2003). Dynamic Asset Pricing with Non-redundant Forwards. Journal of Economic Dynamics and Control, pp. 1163-1180.