It is widely agreed that optimal procurement of reserves,with explicit consideration of systemcontingencies, can improve reliability and economic efficiency in power systems.With increasing penetration of uncertain generation resources, this optimal allocation is becoming evenmore crucial.Herein, a problemformulation is developed to solve the day-ahead energy and reserve market allocation and pricing problem that explicitly considers the redispatch set required by the occurrence of contingencies and the corresponding optimal power flow, static and dynamic security constraints. Costs and benefits, including those arising from eventual demand deviation and contingency-originated redispatch and shedding, are weighted by the contingency probabilities, resulting in a scheme that contracts the optimal amount of resources in a stochastic day-ahead procurement setting. Furthermore, the usual assumption that the day-ahead contracted quantities correspond to some base case dispatch is removed, resulting in an optimal procurement as opposed to an optimal dispatch. Inherent in the formulation aremechanisms for rescheduling and pricing dispatch deviations arising fromrealized demand fluctuations and contingencies. Because the formulation involves a single, one stage, comprehensive mathematical program, the Lagrange multipliers obtained at the solution are consistent with shadow prices and can be used to clear the day-ahead and spot markets of the different commodities involved.