Heating Degree Day - HDD

Filed Under » ,
Dictionary Says

Definition of 'Heating Degree Day - HDD'

The number of degrees that a day's average temperature is below 65o Fahrenheit (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.
Investopedia Says

Investopedia explains '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).

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Weather Derivative

    An instrument ...

  2. Commodity

    1. A basic good ...

  3. Settlement Price

    In derivatives ...

  4. Cooling Degree Day - CDD

    The number of ...

  5. Derivative

    A security whose ...

  6. Futures Contract

    A contractual ...

  7. Risk Capital

    Investment funds ...

  8. Futures

    A financial ...

  9. Hong Kong Stock Exchange (HKG) .HK

    One of the ...

  10. Cantor Futures Exchange

    An electronic, ...

Articles Of Interest

  1. Introduction To Weather Derivatives

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

  2. 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. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.

  4. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.

  5. Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.

  6. Simplify Your Portfolio

    Faced with an overabundance of choices, many investors forget to stick to the basics.

  7. Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.

  8. Minis Provide Low-Cost Entry To Futures Market

    These contracts provide access to commodities without a huge capital commitment.

  9. Forget The Stop, You've Got Options

    Using options instead of stop-loss orders adds finesse and control in limiting losses.

  10. Offset Risk With Options, Futures And Hedge Funds

    Though all portfolios contain some risk, there are ways to lower it. Find out how.
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center