Cooling Degree Day - CDD

AAA

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.

INVESTOPEDIA EXPLAINS '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. Settlement Price

    In derivatives markets, the price used for determining profit ...
  2. Weather Derivative

    An instrument used by companies to hedge against the risk of ...
  3. Heating Degree Day - HDD

    The number of degrees that a day's average temperature is below ...
  4. Settlement Date

    1. The date by which an executed security trade must be settled. ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
Related Articles
  1. Options & Futures

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  2. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  3. Options & Futures

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  4. Options & Futures

    Advantages Of Trading Futures Over Stocks

    We look at the top eight advantages of trading futures over stocks.
  5. Options & Futures

    Why Trading Coffee Futures Is A Zero Sum Game

    Coffee futures trading is as close to a zero-sum game as you might find in investing. We look at the risks and rewards.
  6. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  7. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  8. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  9. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  10. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center