Seasonal discomfort is measured by the deviation above or below a comfortable temperature. Exchange-traded futures on weather use the comfort level of 65° F in the U.S. cities listed in a variety of futures contracts. This allows people to trade on expected deviations in the climate and to hedge exposure in the energy used to make our environment comfortable.
The prices of futures contracts and the energy costs themselves are partially based on the historical record of deviations from 65° F in different locations. Here a heating degree day (hdd) count is incremented daily for each degree of mean temperature below 65° F. Similarly, a cooling degree day (cdd) count is incremented daily for each degree of mean temperature above 65° F.
The histograms display the cdd and hdd counts for the years 1980-2008, each year being a sample. Below them, the mean and standard deviations are listed.
The attribution of historical data to years is done by calendar year. That is, a cold season, such as the winter of 2005, is taken from 1/1/05 and combined with the later cold season at the end of 2005. December 2004, commonly called part of winter 2004-2005, is entirely in 2004 in this analysis.
The contract definitions for exchange-traded weather futures can be found at www.cmegroup.com.
These histograms and the summary statistics allow one to begin a detailed comparison of the nature of risk in pricing degree days.