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Question

Tower Bank approaches economic capital and risk aggregation by first estimating the stand-alone economic capital

for individual risk factors. In a second step, the bank aggregates risks based on the relative amounts of economic capital allocated to these risks, taking into account the correlations between risk factors. Which of the following variables is not a primary driver of the diversification benefit that accrues from aggregation?

a.The number of risk positions

b.The size of the portfolio

c.The concentration of those risk positions, or their relative weights in a portfolio

d.The correlation between the positions

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