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Australian Weather Heating Degree Day (HDD) 
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Overview
CME Group’s involvement in the weather derivatives market dates back to 1999 with the first Exchange traded Heating and Cooling Degree Day contracts. These products are financial tools that provide a means of transferring risk associated with adverse weather events. They are index-based products geared to average seasonal and monthly weather in 45 cities around the world – 24 in the U.S., 10 in Europe, six in Canada, three in Australia and two in the Asia-Pacific region. CME Group also offers a select number of hurricane, frost and snowfall products.  

How Australian Weather is Traded at CME Group
The Heating Degree Day (HDD) and Cooling Degree Day (CDD) Indexes identify what are called degree days. A degree day is a measure of how much a day’s average temperature deviates from 18 degrees Celsius. Average daily temperature is defined as the average of a day’s maximum and minimum temperature.

The utility industry selected 18 degrees as a baseline indicator for energy usage. Days with a temperature under 18 were called Heating Degree Days, as those days when customers began turning on their furnaces. Days when temperatures exceeded 18 were called Cooling Degree Days, as those days when customers began turning on their air conditioners.

Index values are multiplied by a cash amount for settlement. All CME Group Weather contracts are settled in cash, determined by the final index value recorded by Speedwell Weather Derivatives Limited (Speedwell).

Benefits

  • Centralized clearing and counterparty credit guaranteed by CME Clearing
  • Reduced Risk
  • Increased opportunity to focus on core businesses
  • Stabilized cash flow and earnings
  • Opportunity to profit from the uncertainty of weather

Market Participants
Participants in weather markets include companies in a wide range of industries:

  • Utility Companies
  • Energy Companies
  • Insurance and reinsurance companies
  • Hedge Funds
  • Pension Funds
  • State governments