a heating degree day hdd is a measurement designed to quantify the demand for energy needed to heat a building it is the number of degrees that a day s average temperature is below 65o fahrenheit 18o celsius which is 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 1
basics of heating degree day hddwhile hdd can describe the overall need for heating as part of the planning for residential or commercial buildings it is critical for the pricing of weather futures in turn that creates a risk management tool that utility agriculture construction and other firms can use to hedge their activities that depend on the weather energy needs growing season outdoor work time etc the first weather futures contracts based on hdd were listed in september 1999 at the chicago mercantile exchange cme 2