DEFINITION of 'Cooling Degree Day - CDD'

The number of degrees that a day's average temperature is above 65o Fahrenheit and people start to use air conditioning to cool their buildings. The price of weather derivatives trading in the summer are based on an index made up of monthly cooling degree day (CDD) values. The settlement price for a weather futures contract is calculated by summing a month's CDD values and multiplying by $20.

BREAKING DOWN 'Cooling Degree Day - CDD'

To calculate the CDD, take the average of a day's high and low and subtract 65. For example, if the day's average temperature is 80oF, its CDD is 15. If everyday in a 30 day month had an average temperature of 80oF, the month's CDD value would be 450 (15 x 30). The nominal settlement value for its month's weather derivative contract would therefore be $9,000 (450 x $20).

RELATED TERMS
  1. Weather Future

    A type of weather derivative that obligates the buyer to purchase ...
  2. Heating Degree Day - HDD

    The number of degrees that a day's average temperature is below ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred ...
  4. Weather Derivative

    An instrument used by companies to hedge against the risk of ...
  5. Cool Beans

    A slang term used to refer to something favorable that has happened ...
  6. Derivative

    A security with a price that is dependent upon or derived from ...
Related Articles
  1. Trading

    Any Way The Wind Blows, You Can Trade The Weather

    You can trade on anything these days, including the weather.
  2. Trading

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  3. Trading

    An Overview of Weather Derivatives

    Investopedia explains: Weather derivatives allow businesses to safeguard against unusual temperatures or levels of precipitation that may adversely affect financial performance.
  4. Trading

    6 Weird Futures You Can Trade

    From trading based on weather to the next Hollywood blockbuster, these new derivatives show the investing world's innovation.
  5. Investing

    Reduce Energy Costs By Making These Adjustments

    There are several ways you can reduce energy costs. These techniques range from minor tweaks to major renovations.
  6. Investing

    5 Easy Fixes For A High Summer Electric Bill

    These simple tips will help you save money this summer, so you can spend it on more exciting things than electricity.
  7. Investing

    Fight the New Attack on Your Utility Bill

    Guard against stealth attempts to increase utility rates as you reduce your monthly costs with these inexpensive tips.
  8. Personal Finance

    Online Degree Programs With Big Demand

    Are online degrees as respected as traditional college degrees?
  9. Trading

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  10. Small Business

    4 Common Degrees Small Businesses See on Candidates' Resumes

    Understand why the business environment is changing and how it benefits small businesses. Learn about the top degrees small businesses see on resumes.
RELATED FAQS
  1. Is technical analysis used only to analyze stocks?

    The simple answer to this question is definitely not. This form of analysis can be applied in more situations than you may ... Read Answer >>
  2. What kinds of derivatives are traded on an exchange?

    Learn about the different types of derivatives traded on exchanges, including options and futures contracts, and discover ... Read Answer >>
  3. What expiry months are typically available for derivatives?

    Discover more about the derivatives market and learn about the varying expiration months for derivatives in different financial ... Read Answer >>
  4. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  5. How is the price of a derivative determined?

    Learn how different types of derivatives are priced, including how futures contracts are valued and the Black-Scholes option ... Read Answer >>
  6. I did not receive my Bachelor's degree in the United States. How can I determine ...

    CFA institute indicates that a Bachelor's degree is a level of study that would qualify an individual for a graduate program ... Read Answer >>
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center