Heating Degree Day - HDD

DEFINITION of 'Heating Degree Day - HDD'

The number of degrees that a day's average temperature is below 65oFahrenheit (18o Celsius), the temperature below which buildings need to be heated. The price of weather derivatives traded in the winter is based on an index made up of monthly HDD values. The settlement price for a weather futures contract is calculated by summing HDD values for a month and multiplying that sum by $20.

BREAKING DOWN 'Heating Degree Day - HDD'

To calculate HDD, take the average of a day's high and low temperatures and subtract from 65. For example, if the day's average temperature is 50o F, its HDD is 15. If every day in a 30-day month had an average temperature of 50o F, the month's HDD value would be 450 (15 x 30). The nominal settlement value for this month's weather derivative contract would therefore be $9,000 (450 x $20).

RELATED TERMS
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred ...
  2. Average Price

    1. A representative measure of a range of prices that is calculated ...
  3. Oil Refinery

    An industrial plant that refines crude oil into petroleum products ...
  4. Settlement Price

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

    A security with a price that is dependent upon or derived from ...
  6. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
Related Articles
  1. Financial Advisor

    Top 10 Cities For A Career In Finance

    Moving to one of these financial hot-spot destinations could set your career in motion.
  2. Managing Wealth

    5 Businesses That Rise As The Temperature Falls

    Not many people welcome the snow and cold, but these businesses depend on it to increase sales and profitability.
  3. Retirement

    5 States That Are Bad For Retirees

    High taxes, poor healthcare and high crime are some of the reasons these states are bad places to retire.
  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. Personal Finance

    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.
  6. Markets

    Commodities: Heating Oil

    By Noble DrakolnHeating oil is a refined byproduct of crude oil. After crude oil is broken down during the refinement process, it is separated into heating oil. Similar to diesel oil, heating ...
  7. Trading

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  8. Financial Advisor

    How Global Warming Could Sink Your Savings

    There's evidence that climate change could impact the global economy and your portfolio. Here's how to protect yourself.
  9. Markets

    Does Weather Affect the Stock Market?

    Find out if the weather can change the stock market, and why economists and meteorologists will probably always struggle to know the answer.
  10. Investing

    Electrifying Apartment Bills: How To Reduce Them

    As a renter, there are still factors that can influence your heating and air conditioning bill.
RELATED FAQS
  1. How does weather impact the share prices of utility stocks?

    Learn how investing in the utilities sector can provide stability to a portfolio; understand the factors that impact stock ... 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. How big is the derivatives market?

    Examine the potential size of the total derivatives market, and learn how different calculations can reduce the estimate ... Read Answer >>
  5. What does a negative correlation coefficient mean?

    Discover the meaning of a negative correlation coefficient, how this compares to other correlation coefficients and examples ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center