What are heating degree days?

Heating degree days (HDD) measure how cold it was on a particular day or over some time. The number of degree days indicates how cold or warm an area is. A day with a mean temperature of 40°F, for illustration, has 25 HDD. Two consecutive chilly days result in a total of 50 HDD across the two-day timeframe. While HDD may define the fundamental requirement for heating in the household or commercial buildings, it is crucial for weather derivatives pricing.