I am trying to find a way to do a relative value trade between the level of rates and implied volatility when the rates are 2-3 sigma out on a regression. For example when the rates are too high I was thinking of buying the bond and taking an options position through swaption straddles such that the vega risk on the straddle is the (risk on the bond leg)*(beta) (where the regression line is rate = alpha + beta*imp vol). But how do I make sure that the only PnL accruing from the options position is through vega. I do not want any exposure through delta, gamma and time decay? Thx

Well, locally, you could just match and trade the greeks yourself. If variance swaps are available, that should make taking the volatility position far easier. Check out papers by Derman, especially the Demeterfi, Derman, Kamal and Zhou paper for how to replicate volatility swaps.

Thanks. Is the paper available online. It eluded me on a quick search on the web.