Modelling Australian Interest Rate Swap Spreads by Mixture Autoregressive Conditional

An interest rate swap is a contract between two par-ties to exchange periodically fixed rate payments for floating rate payments based on an agreed-upon notional principal and maturity. The fixed rate is known as the swap rate and a swap curve can be constructed using swap rates of different maturities. The swap curve is widely used by financial mar-ket participants as the benchmark for the pricing of investment grade corporate bonds. The floating rate is usually the Bank Bill Swap Reference Rate (BBSW) in the Australian market. The Australian interest rate swap market is the most important over-the-counter (OTC) deriv-ative market in Australia. The outstanding notional amount at the end of June 2006 was US$815.8 bil