An investor endowed with an interest rate risk sensitive non traded cash position uses interest rate futures to maximize the expected utility of his terminal wealth. His trading strategy contains a speculative, mean-variance component and two hedge components when his utility is CARA. The second hedge is a Merton-Breeden term and is performed through a synthetic asset derived endogenously and shown to be a bond of maturity equal to the investor’s horizon.
LIOUI, A. and PONCET, P. (1998). More on Optimal Portfolio Choice under Stochastic Interest Rates. ESSEC Business School.