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 FAQS
  1. No results found.
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

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  4. 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.
  5. 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.
  6. 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.
  7. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  8. Trading Strategies

    Trade Weekly & Up Your Reward Potential

    Weekly patterns sidestep the HFT maelstrom by aligning trade entries and exits with the edges of longer-term trends.
  9. Options & Futures

    Futures Quotes Explained The "Easy" Way

    If there’s a security whose price fluctuates, there can theoretically be a futures marketplace for it.
  10. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center