Heating degree day Heating and cooling degree-days are used in many weather derivatives. For more information on how they are calculated and why they are used, click here . Weather derivatives let a company reduce its weather-related losses by transferring some of the risk to an investor. The investor who sells a weather derivative accepts the risk by charging the buyer a premium.
Cooper expects exponential growth in the market for the next several years.
A company we'll call Regional Gas sells natural gas in a region with cold winters and mild summers. Most of the company's revenue is earned from late fall to early spring, when its customers use gas to heat their homes. Regional Gas' accounting department found that profits fell when a bitterly cold winter caused customers to use more natural gas than expected. That would deplete the company's supplies, forcing it to pay inflated prices for emergency deliveries. The accounting department, as expected, also found that revenue and profits fell during extremely mild winters, when sales slumped.