Can we use USD LIBOR as spot rates for discounting?
If we have overnight LIBOR and say 1 month LIBOR how to compute 16 day LIBOR? Can we do interpolation?
First question can't be answered without knowing what you are discounting.
Second question you are asking whether the rate of a 16 day interbank loan can be obtained from interpolating an overnight rate and a 1 month bank loan. I would say it is a reasonable guess.