Abstract: This paper discussed the optimized purchasing strategy and risk management based on Markowitz portfolio theory and Value at Risk (VaR). The simulation results show that the model is correct and valuable. 1. Introduction It is of great significance for distribution system operators to deal with the allocation problem of purchasing energy in multi-market aiming at controlling costs and risks. However, previous studies mostly focus on the bidding strategy of power plants in the wholesale market. In this paper, optimized purchasing strategy and risk management for distribution system operators in deregulated electricity market are explored. 2. Purchasing Strategy Based on Markowitz Portfolio Theory 2.1 Markowitz Portfolio Theory Markowitz’s theory is one of the modern portfolio theories which can disperse risks and stabilize revenue. It is used to maximize portfolio profit expected return for a given amount of portfolio risk. 2.2 Purchasing Model Based on Markowitz Portfolio Theory The model of energy purchasing is constructed based on Markowitz’s means-variance theory in which profit is measured as means and risk as variance. Apparently, it is a bi-objective function optimization model, and actually, under an acceptable level of risk or determining the expected rate of return, it is converted into a single-objective programming problem. According to Markowitz portfolio theory, portfolio return is determined by the energy purchasing weighted average in different market and total portfolio risk depends on the following factors: Ø The weighting of component energy purchasing; Ø Return variance of each energy purchasing; Ø Correlation between all the energy purchasing. 3. Purchasing Strategy Based on Markowitz Portfolio Theory and VaR 3.1 Value at Risk Considering the Markowitz model’s limited that measures risk as variance, this paper introduces Value at Risk (VaR) which is another risk measure and management tool that has good mathematics characteristics. 3.2 Purchasing Model Based on Markowitz Portfolio Theory and VaR An energy purchasing model is established based on Markowitz portfolio theory and VaR. The research emphasis is focused on the weighting of component energy purchasing in multi-market, portfolio revenue and risk values at different risk levels. The problem gets much simpler by converting it to linear programming problem. 3.3 Simulation In order to prove the model effective further, a calculable example is used here to illustrate the validity of the energy purchasing model. The computational results by using the model show following conclusions： Ø The energy market players can avoid risk by using long-time contract, simultaneously, the expected revenue descends. Ø The different risk attitude in deregulated electricity market brings energy market players the different revenue. Ø As the index to measure risk, VaR can truly reflect the level of risk in various markets purchasing. And energy market players will certainly put themselves at great risk if they want to obtain the super profit. 4. Conclusion Considering the balance between risk and profit, in this paper, and using VaR as index to measure risk， the optimized purchasing strategy and risk management in multi-market are proposed. The simulation results show that the model is effective.