Temperature Inputs

°F
Standard is 65°F (18°C)
°F
Average of daily high and low
For cumulative degree day calculation
Degree Day Formulas
HDD = max(0, Base − Avg Temp)
CDD = max(0, Avg Temp − Base)
HDD measures cold (heating demand).
CDD measures heat (cooling demand).
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Degree Day Results

HEATING DEGREE DAYS 20.00 HDD Heating Season
HDD 20.00
CDD 0.00
Temp vs Base -20°F
Season Type Heating

Formula Breakdown

Model Assumptions
  • Uses standard 65°F (18°C) base temperature by default
  • HDD and CDD are mutually exclusive (only one is positive per day)
  • Multi-day mode assumes constant average temperature across all days
  • Based on CME Group weather derivative contract specifications

Understanding Degree Days

What are Degree Days?

Degree days measure how much the daily average temperature deviates from a base temperature (typically 65°F). They quantify energy demand for heating or cooling. The concept dates back to the 1930s when utility companies needed to forecast fuel consumption.

Key Formulas
Heating Degree Day (HDD) = max(0, Base Temp − Average Daily Temp)
Cooling Degree Day (CDD) = max(0, Average Daily Temp − Base Temp)
Standard base temperature is 65°F (18°C)

HDD vs CDD

On any given day, either HDD or CDD (or neither) is positive—never both. This mutual exclusivity makes degree days ideal for weather derivative contracts.

Heating Degree Days

Cold weather indicator
Measures heating demand. Higher HDD means colder weather and more energy needed for heating. Used to hedge natural gas and heating oil costs.

Cooling Degree Days

Hot weather indicator
Measures cooling demand. Higher CDD means hotter weather and more energy for air conditioning. Used to hedge electricity costs.

Weather Derivatives Applications

Weather derivatives use cumulative HDD or CDD over a contract period as the underlying index. Common applications include:

  • Energy companies: Hedge against warm winters (low HDD) or cool summers (low CDD) reducing demand
  • Agricultural businesses: Protect against adverse growing conditions
  • Retail: Hedge seasonal sales affected by weather patterns
  • Utilities: Manage revenue variability from temperature-sensitive demand
For more on weather derivatives, see the guide to weather derivatives.
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Frequently Asked Questions

A Heating Degree Day measures how much the average daily temperature falls below a base temperature (typically 65°F). One HDD means the average temperature was 1 degree below the base for one day. HDDs quantify heating demand and are used in weather derivatives to hedge heating fuel costs.

A Cooling Degree Day measures how much the average daily temperature exceeds the base temperature. One CDD means the average temperature was 1 degree above the base for one day. CDDs quantify cooling demand and are used to hedge electricity costs for air conditioning.

65°F (18°C) represents the outdoor temperature at which most buildings require neither heating nor cooling. Below 65°F, heating systems typically activate; above 65°F, cooling may be needed. This threshold has been used since the 1930s in energy planning and remains the industry standard for weather derivatives.

Weather derivatives use cumulative HDD or CDD over a contract period as the underlying index. A heating fuel supplier might buy HDD puts to protect against warm winters. An electric utility might buy CDD calls to hedge against hot summers. Contracts typically settle based on actual degree days measured at specific weather stations.

No. HDD and CDD are mutually exclusive for any given day. If the average temperature equals the base, both are zero. If below the base, only HDD is positive. If above the base, only CDD is positive. This ensures no double-counting in derivative contracts.
Disclaimer

This calculator is for educational purposes only and does not constitute financial or trading advice. Actual weather derivative contracts may use different base temperatures, measurement stations, or calculation methods. Consult CME Group or other exchange specifications for contract details.

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