In a glass bottle or jar, steep the chopped hazelnuts in the vodka for about 2 weeks in a cool, dark place, gently shaking the bottle every day.
Gently pour the contents through a strainer or sieve, pressing hard on the nuts to release all the flavor.
Follow this by 2 strainings through slightly dampened cheesecloth or large coffee filter; loosely cover the contents with plastic wrap, since the process may take several hours.
In a very small saucepan, combine the sugar and water. Bring to a boil over moderate-high heat.
Simmer, uncovered for 5 minutes. Let cool to room temperature. Stir in the vanilla.
Funnel into a glass bottle, the funnel in the sugar syrup. Cover tightly; shake to blend. Let mature at room temperature, or slightly cooler, for at leat 3 weeks.
Homemade version of Frangelico. "Glorious Liqueurs" Mary Morris.