Reading 33, on weather derivatives... Glitch or is it just me?

CFA Level III Portfolio Management
#1

Hi!

I’m currently studying AI for PM, and just wanted to know… p 187 of the 5th volume seems to define heating degree day and cooling degree day as being the same…

“A HDD is the maximum of zero and the difference between the average daily temperature and 65 degrees Fahrenheit. A CDD is the maximum of the difference between the average daily temperature and 65 degrees Fahrenheit, and zero.”

Now… this sounds like the two are the same…

Any clue what I’m missing there? (Sorry, English is not my first language…)

Thanks

#2

I looked this concept on the internet - given that these two definitions are the same.

Actually - the way it is presented elsewhere makes them quite different.

  1. Calculate the Avg Temp in the day (High + Low)/2.

  2. If this temperature is > 65 - you have a Cooling Degree Day. Avg Temp - 65 is the number of Cooling Degree Days (Day is hotter - so you would most likely use cooling). If this temperature is less than 65 - you have a Heating Degree Day (you need to heat up the place). 65 - Avg Temperature would be the number of the Cooling Degree Day.

http://usatoday30.usatoday.com/weather/resources/askjack/waskdays.htm

#3

Thanks CPK 123! I don’t see why they won’t reread their own definitions… Obviously theirs is incomplete!!