How to Calculate Cooling Degree Day (CDD)
There are several ways to calculate CDD. The more detailed a record of temperature data, the more accurately the CDD can be calculated.
1. Subtract 65 from the average of a day's high and low temperatures. For example, if the day's average temperature is 75o F, its CDD is 10. If that day's average is below 65, the result is set to zero. If every day in a 30-day month had an average temperature of 75o F, the month's HDD value would be 300 (10 x 30). The nominal settlement value for that month's weather derivative contract would, therefore, be $6,000 (300 x $20).
2. Subtract 65 from each half-hourly temperature reading, with the provision that negative values be set to zero, sum the result and divide by 48 (48 half-hours in a day). Then sum that value over 30 (for a 30-day month) and multiply by $20. If a given day's value is less than or equal to zero, that day has zero CDD. But if the value is positive, that number represents the CDD on that day.
For all methods, if the value for any given day is less than or equal to zero, that day has zero CDD. But if the value is positive, that number represents the CDD number of that day.