This paper constructs a model with dynamic risk neutral probabilities of double stochastic variables and multistage constructions for the cellulosic ethanol project in China. Based on real option analysis, the investors can estimate the unit market value of the cellulosic ethanol project. Because of the great reduction of the gasoline price and the huge increment of the corn cob price, there are some negative decision values. Specially, action “invest” is still the optimal decision if only the stage-1 construction has been completed. Due to the regulation of the Chinese government, the dynamic risk neutral probabilities of the gasoline price and corn cob price are around 0.5, that are obviously different with the fixed risk neutral probabilities
