Strategic behavior of risk-averse agents under stochastic market clearing

We present a model of a commodity auction in which sellers and buyers (agents) represent risk using coherent risk measures. These are communicated to the auctioneer who computes socially optimal transactions assuming complete risk trading. The model is applied to economic dispatch and system marginal prices in a single-settlement wholesale electricity pool under uncertainty. If agents' risk measures are known by the system operator then prices form a socially optimal dispatch which is revenue adequate and recovers agents' costs in risk-adjusted expectation. We construct a non-cooperative game to show that agents have incentives to misrepresent their risk measures to improve their risk-adjusted profit.