When constructing the FedFunds yield curve I want to define the curve based on two separate interpolation schemes. The first on the short end being LogLinear on the discount factors between FOMC meeting dates whilst the second being a smooth Cubic Spline for longer maturities. Assuming we are using a global optimization to construct the curve we can simply create the short end using FOMC-dated OIS then standard OIS for the long end. My question is regarding the very first FOMC-dated OIS (USSOFED0 Curncy on Bloomberg) which doesn't have available market data. Is it reasonable to create a synthetic quote to produce a forward rate equal to the current EFFR between today and the next FOMC meeting?
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$\begingroup$ Related: quant.stackexchange.com/questions/71071 $\endgroup$– Dimitri VulisCommented Oct 26, 2023 at 11:48
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$\begingroup$ Yes. If the data was not available and you could tolerate very small error, I would assume the current index compounded up. Note it is FOMC effective dates that you want to use. I do not know if these always align with meeting dates. In other currencies they do not. $\endgroup$– Attack68 ♦Commented Oct 26, 2023 at 13:32
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