Cooling Degree Day - CDD
Categories: Derivatives, Trading
What happens when the weather falls from 60 degrees to 50 degrees during college graduation, and you didn’t wear anything under your gown. And they just called your name.
In finance, a cooling degree day is a metric used by smart people to decide just how much energy its required to reduce the temperature in a building.
Think of it as the total number of degrees needed to ensure that temperatures are above 65 degrees Fahrenheit. That temperature is important, because buildings need to be cooled when the temperature hits this level.
Financial traders who exchange weather derivatives use indices of Cooling Degree Days to price those products.