This　paper　proposes　a　hierarchical　optimization　method　to　determine　the　installed　capacity　of　an　offshore　wind　farm　and　the　layout　of　the　wind　farm.　The　upper　model　takes　the　maximum　annual　profit　of　installed　capacity　as　the　goal　to　decide　the　installed　capacity　and　layout　of　offshore　wind　farm.　The　obtained　installed　capacity　and　layout　are　transferred　to　the　lower　level　as　parameters.　After　considering　the　influence　of　wake　effect,　the　lower　layer　model　calculates　the　predicted　output　of　the　offshore　wind　farm　with　the　determined　layout,　wind　speed　and　direction,　the　output　as　a　constraint　of　wind　farm　participating　in　the　day　ahead　market　bidding.　Then,　the　day　ahead　market　bidding　model　with　the　operating　constraints　is　constructed.　The　bid　winning　output,　marginal　node　price　and　penalty　costs　in　real-time　market　due　to　wind　power　prediction　error　are　transferred　to　the　upper　level　as　parameters.　The　optimal　installed　capacity　and　offshore　wind　farm　layout　can　be　obtained　by　solving　the　bi-level　optimization　model.　The　rationality　and　superiority　of　the　proposed　optimization　method　are　verified　by　cases.　©　2020,　Power　System　Technology　Press.　All　right　reserved.