An asset swap which has an embedded option (a spread option between the substitutable assets) allowing the holder to substitute the underlying asset with another on a particular date/dates at a spread over the current market price. In this swap, the buyer/holder of the long position sells the original seller (or another counterparty) the right to replace the underlying asset with another asset or a basket of pre-defined assets. At the inception of the asset swap switch, the pre-specified underlying assets should be of the same duration and credit quality so as the prices of those assets move hand in hand as interest rates change. The right to exercise the embedded option will be advisable if the credit standing of underlying asset/assets declines vis-à-vis that of the substitutable asset. The switchability embedded into asset swap switches enhances the yield of the underlying asset swap.

The asset swap switch is alternatively known as a basket asset swap or an asset basket swap.