Asset swaps are contracts that help separate credit and interest rate risks in fixed-rate debt instruments. They involve two parties exchanging fixed and variable interest rate payments based on a specified amount. Unlike regular interest rate swaps, where rates are determined by market forces, in asset swaps, the fixed rate is usually set equal to the coupon rate of a corporate bond or loan, with the spread over LIBOR adjusting to market conditions. This allows parties to manage their risks effectively.